Total outstanding borrowings of a Central Government comprising of internal and external debt incurred in financing its expenditure. Internal Debt comprises of the debt collected from national creditors and External Debt comprises of the debt collected from foreign creditors.
National Debt is divided into 3 categories :
1. Floating Debt, short term borrowings such as treasury bills, various ways-and-mean advances and borrowings from Central Bank.
2. Funded Debt, short term debt converted into log term debt.
3.Unfunded Debt, national savings certificates, savings bonds, premium bonds and securities repayable in foreign exchange.
National Debt plays a crucial role in a country’s financial system as government securities form an important part of the reserves of its financial institutions.